- The Washington Times - Wednesday, March 30, 2005

Q: Can I use shares of stock to make a donation to charity instead of cash? Is there any advantage to doing that?

A: Yes, and absolutely yes.

Donating shares of stock can be an excellent way to give to your favorite charity and also save money on your taxes. But it’s most advantageous with shares that you’ve held for more than a year, and which have appreciated since you bought them.

Here’s how it works. When you donate stock, you get to deduct the current value of the shares on your taxes, not the price you originally paid for them. Again, this method applies only to long-term holdings, which the Internal Revenue Service defines as being held for 12 months or more.

In addition to getting a deduction, you’ll also avoid ever having to pay taxes on the capital gains on those shares in the future. In effect, you’re getting to donate to charity largely with money on which you never have, and never will, pay taxes.

“It’s tax alchemy,” says Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants, a professional organization for accountants based in Washington. “It’s a very sweet deal.”

Say you bought 100 shares of a company when the stock was trading at $10, and those shares are now worth $50 each. If you donate the shares, you get to deduct $5,000 from your taxes, even though you paid only $1,000 for them.

To make a donation, contact the charity and get the number of a brokerage account you can use to transfer the shares. Then contact your broker, who probably will ask for written authorization from you to make the share transfer.

You’ll need a couple of documents to get the deduction. First, have your broker send you a letter spelling out how many shares were donated to which charity at what time, and you’ll also need a receipt from the charity saying they got the shares. When you do your taxes, use IRS Form 8283, Noncash Charitable Contributions, to claim the deduction.

In most cases, the value of the donation will be determined by taking the value of the shares on the day that they actually landed in the charity’s brokerage account, says David Ratcliffe, director of the Merrill Lynch Center for Philanthropy and Non-Profit Management.

That usually will happen on the day after your broker makes the electronic transfer, Mr. Ratcliffe said.

Again, these advantages apply to shares you’ve held for more than a year. For any shares held for less than a year, you would get to deduct only what you paid for them, Mr. Ochsenschlager said.

Although it’s too late to make donations for 2004, there’s plenty of time for this year. If you end up making donations close to the end of the year and the charity sends you an acknowledgment letter in the new year, make sure they note the date of the actual donation so you can claim it in the right year.

A few other things to keep in mind: In many cases, charities will liquidate any shares donated to them right away, Mr. Ratcliffe says, and donating stock shares or even bonds is a much simpler and quicker process than donating shares in a mutual fund.

Finally, in order to realize the greatest possible tax savings, if you acquired a bloc of shares over time at different prices, be sure to donate the ones that you acquired at the lowest cost. Those shares contain the biggest amount of capital gain on which you can avoid getting taxed.

Even if you have cash on hand that you plan to donate to a charity, using appreciated stock still can work to your advantage, Mr. Ratcliffe says. Say you have shares in a company that you like but which have already appreciated quite a bit. Donate some of the shares to a charity, and use the money you would have donated instead to buy an equivalent amount of new shares at today’s prices to replace the ones you donated.

You’ve made the same-size donation, but by using appreciated shares, you’ve taken a looming capital gain off your books, lowering your future tax bills. Your position in the company remains the same.


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